The problem with trading Trump's tax 'plan'

Andrew Harnik  AP File

Andrew Harnik AP File

"US President Donald Trump will make an important announcement about his awaited plan for tax reform next Wednesday".

"We'll be having a big announcement on Wednesday having to do with tax reform", he told reporters at the signing ceremony.

The current corporate tax rate is 35 percent.

The TPC was working off a plan from the Trump campaign that was thin on details.

Treasury Secretary Steven Mnuchin has said, however, that Trump's tax plan would be paid for through economic growth.

The Trump administration on Tuesday stuck with its assertion that tax reform could push economic growth above 3 percent. The first Treasury Department review of banking regulations won't be submitted to the White House until June, and these two new reviews won't be complete until even later in the year. How much revenue will it bring in?

Mnuchin also urged countries to abide by their exchange-rate commitments, such as to refrain from competitive devaluation, not use monetary policies to target exchanges rates for competitive purposes, and to consult closely on exchange rates. Instead, Republicans are pushing for tax cuts and increased defense spending. And that growth, in turn, will generate more revenue. Like George W. Bush before him, Trump will likely find it prohibitively hard to pass deeply unpopular tax cuts for the rich, while also pushing through deeply unpopular spending cuts and/or middle-class tax increases.

But the White House may be disappointed when third-party experts analyze Trump's proposal.

Donald Marron, who served on former President George W. Bush's Council of Economic Advisers in 2008 and 2009, said the administration's seeming estimate of the favorable feedback effects from lower taxes was "surprisingly large", though he cautioned he hadn't seen the details of the plan. An analysis that doesn't factor in economic growth forecasts is called a "static" assessment. "[It's] fantasy math", said Marc Goldwein, senior policy director of the Committee for a Responsible Federal Budget.

In contrast, Mnuchin's comments suggest the administration is looking for a 50 cents-plus payback.

"Under static scoring, there will be some short-term issues", said Mnuchin, one of the plan's key architects.

Of course, Goldwein isn't the official fiscal scorekeeper for the bills Congress votes on.

Tax reform would likely have a modest effect on growth, nearly surely not enough to match the administration's 3 percent growth target, said Mark Mazur, director of the nonpartisan Tax Policy Center and a former assistant treasury secretary for tax policy in the Obama administration. Hall was chosen by Republicans to head up the respected, nonpartisan agency. Additionally, legislation to repeal and replace the Affordable Care Act - which includes nearly $1 trillion in potential tax cuts of its own - remains an uncertain prospect at best.

How big of a fraction may differ depending on the dynamic model used.

"We want to create a system where the average American can file a tax code on a big postcard", Mnuchin said.

Trump has pledged that the tax cut in total would be the largest in US history, and his advisers have said that the economic growth it stimulates would make up for any shortfall in revenue.

Last week, House Speaker Paul Ryan asked the nonpartisan Joint Committee on Taxation to analyze the budget effects of a temporary cut in the corporate tax rate, to 20 percent, that would expire after three years.

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